Last week I paid a visit to EA to discuss finance with a key marketing and sales group at the Redwood Shores campus. Since it was an afternoon session I was able to get in and out on the same day, which is always a nice trick. I did miss a ski day in Utah but with the current snow situation sadly I didn’t miss much.
It was beautiful day in the bay area for finance and I was able to get some local grilled artichoke for lunch. I can recommend Kingfish in San Mateo if anyone makes it out to that area. I’ve never a bad meal at Kingfish.
The finance session was great. This group scored an EA record high of 55% on the financials assessment so I felt like we could hit advanced topics. (Just for the record the national average on a test very similar to the EA’s test for US executives was 38%). We spent most of our time going over what I call the big five metrics that Wall Street looks for when evaluating public companies. They are revenue growth, earnings per share (EPS), free cash flow, EBITDA (earnings before interest, taxes, depreciation, and amortization), and Return on Equity (ROE) or Return on Total Capital (ROTC). When I first started training at EA all of these ratios were negative except free cash flow and revenue growth and those numbers were flat. So EA was a business that was losing money that generated a little cash and was not growing. The stock was lagging in the low teens at the time.
In the last two years things have changed for the big 5. First, for the 2015 fiscal year closing in March EA is forecasting as modest growth in revenue. The company will break a record for free cash flow exceeding $1 billion. All the profit based numbers are positive, EPS, EBITDA, and ROE. Guess what the stock price is today as I write this blog? $56.67! That is an increase of well over four times.
Great products and good market potential are important. Wall Street also loves technology. On the other hand there is no substitute for hitting the big 5 numbers. EA is living proof.